Change not always as good as horror day

David Potts

There's never yet been a change that was retrospective, which is why the rules are so complicated.

Trust me, all these special cases from several changes ago will remain on the books forever.

Besides, there's a way for retirees to protect themselves, which I'm coming to.

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But it must be said the government frightened the bejesus out of baby boomers by planting the rumour that it would lift the tax on super payouts, something Treasury is keen on. Accustomed as we are to governments changing the goalposts, that sounded like switching to another code altogether.

Eventually, a denial came from none other than Julia Gillard - oh dear, not a good sign - along with the hint there would be something or other in the May budget that would be not as bad. Guess she's hoping we'll be grateful for small mercies. And where's the opposition when you need it? It can only bring itself to rule out any changes for 12 months.

The super industry isn't much help, either. It's got a bee in its bonnet about how you can salary sacrifice only $25,000 a year at most - even less in practice because your employer's compulsory contribution also counts - into super and it's taxed at 15 per cent instead of up to three times that on your marginal tax rate.

The cap used to be quadruple that, allowing those near retirement to have a last-minute dash to top up their super. But when you think about it, if there's a spare $100,000 sitting around, do you really need an extra tax break to stash it into super where there's one already? Especially knowing you'll be retiring soon? Anyway, just between us, there's a way around that.

Ask an accountant to set up your own fund and lend the money to it. A loan isn't considered a contribution.

Where was I? Oh yes, super's secret black box is the 15 per cent flat tax on what it earns. This is simply unbeatable as a tax break. Well, legally, that is.

Although salary sacrificing gets all the attention, and it's great as tax breaks go, don't underrate contributions from your after-tax pay. There's no tax break going in, but you get the black box working for you. And there's iron-clad protection from future rule changes to boot.

How's that so?

Because the money has already been taxed as your income. It's designated tax-free (as distinct from taxable, where anything could happen) when it enters the super system, never to be heard from again.

Once it eventually emerges, it will have metamorphosed into an armour-plated payment that can't be tampered with.

Which brings me to a special trick, officially sanctioned as a re-contribution, for self-funded retirees over 60.

In this seemingly pointless exercise, you take money out and then put it back in.

How hard is that?

Yet you'll be waving a magic wand that turns it into a tax-free component, protecting you from any future rule changes.